Revco

ON JULY 28,1977, Revco Drug Stores, Inc., was found guilty of a computer-generated double-billing[Page 688] scheme that defrauded the Ohio Department of Public Welfare out of $500,000 in Medicaid funds. At the time, Revco was one of the largest drug retailers in the United States with 825 stores in 21 states.

This case was uncovered by accident in May 1976 when a pharmacist in one of Revco's Ohio stores was puzzled by the large number of prescriptions for narcotics and tranquilizers written by a local podiatrist. A vice president at Revco headquarters called the pharmacy board in support of a thorough inquiry; the pharmacy board contacted the Ohio Department of Public Welfare and by August 1976, the Revco records and the Public Welfare records for this podiatrist were being compared manually.

In October 1976, the investigation was expanded and by March 1977, a pattern of doublebilling using transposed prescription numbers regardless of prescribing physician by multiple Revco outlets, was documented. The unraveling of this fraud involved a number of agencies and enormous effort due to the complexities of two different computer systems—Ohio Public Welfare and Revco. The intricacies read like a good mystery story. Revco finally revealed that a vice president and a program manager under his supervision decided to “make good” claims rejected by Ohio Public Welfare. They hired six clerks to alter the rejected claims—not by correcting them—but by double-billing with falsified prescription numbers to get money they felt the state of Ohio “owed” Revco.

Throughout this investigation, “Revco assumed the role of the victim, not the offender,” explains author Diane Vaughan in Controlling Unlawful Organizational Behavior. It is true that Revco's rate of claims rejections was higher than other providers (24 percent compared to 2 to 6 percent for other companies); Revco's solution was systematic fraud rather than the programmed pre-submission screening system suggested by the welfare department.

Vaughan mentions that the “maintenance of a reliable pre-submission edit system is expensive. Once installed, the provider's system requires constant adjustment as the information needed by the welfare department frequently changes. Allowable claims vary. Recipient eligibility requirements may be altered. New drugs on the market necessitate constant revision of the drug formulary.” Interestingly, the welfare department kept Revco as a Medicaid provider and, “the negotiations were concluded. Revco agreed to enter a plea of no contest to 10 counts of falsification, a misdemeanor of the first degree.

Under the organizational criminal liability statute, the prosecution would recommend imposition of the maximum fine of $5,000 per count. [$50,000]. In addition, Revco would make restitution in the amount of $521,521.12 to the Ohio Department of Public Welfare. As for the two executives, each would plead no contest to two counts of falsification,” Vaughan reported. Later, Revco did institute pre-edits as required by the welfare department.

In 1997, a buyout by CVS drugstores was approved by the Federal Trade Commission. Revco systems were simply converted to CVS systems. This merger made CVS second only to Walgreen's in revenue in the drugstore industry. Now a big player, Revco paid $4 million in 2001 to settle allegations of submitting false prescription claims to government health insurance groups.

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